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I don't guarantee any accuracy, but since I am taking the week off and I have time to respond ...

Unfortunately, the minimum initial investment for the fund is 25K. That goes for an IRA fund too. Being that there is a 2K limit on your contribution, how does this work? Does the remaining 23K get diverted into some other non-IRA account?

Actually, it means you will not be able to hold that fund inside your Roth IRA account at Vanguard. You would need to choose a fund that has a minimum of $2,000 or less (assuming you can fund your Roth IRA with $2,000, which I don't think you can--see later), such as the Vanguard 500 Fund (VFINX, $1,000 minimum within a Roth IRA) or the Vanguard Total Stock Market Fund (VTSMX, $1,000 minimum inside the Roth IRA).

I am not 100% positive, but I am fairly certain that, when considering minimums to open an account, the Roth IRA investments have to stand on their own, separate from whatever is invested in other types of accounts (such as regular (taxable) accounts), so, no, you cannot invest $23K in a regular account and $2K in the Roth IRA to make the $25K minimum for that fund. You can verify this on the "Index Funds" board or by calling Vanguard directly.

The money inside a Roth IRA account could come from several sources, such as multiple years of contributions (no, you don't have to keep each year's Roth IRA contribution in a separate account) and conversions from a Traditional IRA (including conversions from "rollover IRAs" where 401(k) or 403(b) money from a previous employer was rolled into an IRA and then converted to Roth), so it is possible for some people to have $25K in their Roth IRA account.

I have no earned income on my name this entire year

To be able to make your Year 2001 Roth IRA contribution, you must qualify based on your calendar year 2001 earned income. If you have no earned income in calendar year 2001, you cannot make a Roth IRA contribution unless you are married, filing jointly, and your spouse has enough earned income in year 2001 without hitting the AGI limit.

I am assuming you are a calendar year tax person--if your taxes are based on a fiscal year that is different from the calendar year, I don't know if you have to qualify based on the calendar year or based on your fiscal year. Almost all individual filers are calendar year filers.

By the way, even though the Tax Year 2001 Roth IRA can be funded any time from January 1, 2001 through April 15, 2002, a calendar year filer must qualify based on earned income and AGI limits for January 1, 2001 through December 31, 2001--those extra 3.5 months to contribute to a Roth IRA do not give you more time to qualify for for making contributions.

What will happen to the account if I try to set it up? Will I be rejected?

Vanguard might not know that you don't qualify (their web site covers the qualifications, but they don't have access to your tax filings), but the IRS would probably become ... let's say ... concerned--the IRS gets both your tax filings (such as W-2 statements and self-employment filings showing earned income) and a statement from your Roth IRA custodian showing what tax year your contributions are for and the amount of the contributions. The IRS will charge you 6%/yr for having unqualified money in a Roth IRA until that money is removed. Overall, you would be better to invest in a tax efficient mutual fund in a regular (taxable) account than trying to fool the IRS.
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